Pay-ratio rule dings retail industry for the opportunities it creates for part-time workers

The pay-ratio rule forces companies to report the ratio of CEO pay to median employee pay.

Part-time workers are not factored out of that calculation, skewing the results.

The rule paints the retail industry in a negative light, despite the role it plays in offering young people their first jobs or others a more flexible part-time work schedule.

If the goal is to spark a national conversation about the economic status of tens of millions of American workers, then let's have that conversation, writes the National Retail Federation's Matthew Shay.

Matthew Shay, president and CEO of the National Retail Federation

Published 9:01 AM ET Thu, 15 March 2018
CNBC.com

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A Target worker helps a customer at a Target store in San Rafael, California.

In every town and every city around the country, retail is the training ground for America's workforce.

Six in 10 Americans have worked a retail job and one-third of the population got their first job in the industry. It teaches important, lifelong skills like customer service, working as a team, communication and time management that are transferable whether a person stays in the industry or not. Retail employs 1 in 4 of America's working teens — providing their first exposure to the working world and the responsibilities that come with it.

Part-time retail positions play a critical but unheralded role in the U.S. economy, improving the lives of millions of Americans who hold them. An estimated 75 percent of part-time workers choose this type of employment. For many, it provides the opportunity to earn income while pursuing educational goals or caring for family members. For others, part-time work offers a critical first rung on the job ladder, building skills and experience that boost long-term job prospects and lifetime earning potential.

Retailers rely on part-time workers to match customer service with often highly variable customer demand, which can change by the day or by the season. This is the major reason nearly one-third of all the industry's workers are part-time employees.

The Security and Exchange Commission's so-called pay-ratio rule, scheduled to hit as proxy season arrives, takes this important part of our workforce and uses it to paint an inaccurate picture of retail jobs in the name of investor transparency.

The misguided rule, a legacy of the 2010 Dodd-Frank Act, requires public companies to report their ratio of CEO pay to median employee pay. It's purported to be a tool for shareholders; in reality, it's a partisan tool aimed at stoking resentments in typical class warfare style.

The rule isn't just inherently political, it's also fatally flawed. As it's to be calculated (or miscalculated), according to the SEC, the rule won't offer any new or meaningful insight into a company's pay structure. It will merely show arbitrary numbers that will be disproportionately skewed in industries like retail that employ more part-time, seasonal and entry-level workers. This disclosure presents an inaccurate picture of retail, which offers good and flexible jobs, dynamic careers with significant development opportunities and competitive pay.

Part-time workers obviously earn less than their full-time colleagues, for reasons including differences in experiences and skills. Including these workers in the SEC's calculation distorts the final pay ratio and creates a false picture about a company's commitment to pay employees, including part-time workers, a fair wage. We estimate that it inflates the industry's ratio by 31 percent.

The numerator in the SEC's ratio, CEO compensation, reflects employment on a full-time, annualized basis. But employers must use a denominator based on a completely different standard, one that fails to account for length of employment or hours worked. This results in an apples-to-oranges comparison that gives retail employers a black eye they don't deserve.

Does anyone really think comparing the paychecks of part-time teenagers in their first jobs to compensation of CEOs yields any useful insight about the management effectiveness or investment quality of retail companies? Or that it will generate effective policy ideas on how to put more Americans on a path to success?

Instead of achieving its stated goals, the SEC pay ratio rule, as it now stands unfairly tarnishes industries like retail that employ millions of Americans who choose to work part time.

And by the SEC's own calculations, it will also impose costs on employers of $1.3 billion in 2018, offsetting some of the benefits of tax reform just as they begin to work their way through the economy.

If the goal is to spark a national conversation about the economic status of tens of millions of American workers, then let's have that conversation. Let's not start it, though, by tarnishing the very industries that have stood by those workers and given them a chance — and a start at a career — when so very few others have.

Matthew Shay is president and CEO of the National Retail Federation.

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